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Exchange rate regulations and policies

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In order to finance international trade and financial exchanges across borders, banks and financial institutions around the world exchange no less than $ 5 trillion in currencies every day in the foreign exchange markets. That amount represents about $ 600 for every person who lives on planet Earth. The currency exchange market is a market that is transacted 24 hours a day without stopping and almost universally.

Usually banks exchange their deposits in exchange for real large amounts of currency. For example, a US bank might exchange dollar-denominated deposits it has with deposits held by an Iraqi bank that are denominated in dinars. In fact, the foreign exchange market is characterized as a hypothetical market (or what economists call across the table), meaning that most transactions in it take place between major banks through computer networks that link them instead of physical exchanges. Despite the enormous size of these exchanges, most of them are concentrated in limited places and within a relatively small number of currencies. More than half of the world's foreign exchange exchanges involve financial institutions in the United States or the United Kingdom. About 85% of the exchanges are made using the US dollar, 39% of the euro, 19% of the Japanese yen, and 13% of the British pound sterling.

Exchange rate policies:

Different countries have different exchange policies for their currencies. Some countries, such as the United States and Canada, allow the exchange rate to be determined by the forces of the foreign exchange market, as is the case with the prices of most other goods and commodities. Countries that take this approach have a floating exchange rate. Other countries prefer a fixed exchange rate, or what is also called a pegged exchange rate, between a country's currency and another country's currency. For example, Iraq has a fixed exchange rate of 1,450 dinars to the dollar. When countries adopt certain exchange rate policies, economists say there is regulation of the exchange market, or exchange rate regime.

Countries around the world usually follow one of three exchange rate regimes:

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1. Fixed exchange rate system.
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2. Floating exchange rate system.
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3. Managed Floating Exchange Rate System (or Intermediate Exchange Rate System)
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